Walk me through how we would value a REIT (Real Estate Investment Trust) and how it differs from a “normal” company.

Similar to energy, real estate is asset-intensive and a company’s value depends on how much cash flow specific properties generate. – You look at Price / FFO (Funds From Operations) and Price / AFFO (Adjusted Funds From Operations), which add back Depreciation and subtract gains on property sales; NAV (Net Asset Value) is also important. … Read more Walk me through how we would value a REIT (Real Estate Investment Trust) and how it differs from a “normal” company.

Walk me through how we might value an oil & gas company and how it’s different from a “standard” company.

You use the same methodologies, except: – You look at industry-specific multiples like P / MCFE and P / NAV in addition to the more standard ones. – You need to project the prices of commodities like oil and natural gas, and also the company’s reserves to determine its revenue and cash flows in future … Read more Walk me through how we might value an oil & gas company and how it’s different from a “standard” company.

I have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly?

There’s no “rule” that says this is wrong or not allowed, but it can be misleading to compare companies with dramatically different margins. Due to basic arithmetic, the 40% margin company will usually have a lower multiple – whether or not its actual value is lower. In this situation, we might consider screening based on … Read more I have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly?

How far back and forward do we usually go for public company comparable and precedent transaction multiples?

Usually you look at the TTM (Trailing Twelve Months) period for both sets, and then you look forward either 1 or 2 years. You’re more likely to look backward more than 1 year and go forward more than 2 years for public company comparables; for precedent transactions it’s odd to go forward more than 1 … Read more How far back and forward do we usually go for public company comparable and precedent transaction multiples?

I have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies – how can I find it if it’s not available via public sources?

1. Search online and see if you can find press releases or articles in the financial press with these numbers. 2. Failing that, look in equity research for the buyer around the time of the transaction and see if any of the analysts estimate the seller’s numbers. 3. Also look on online sources like Capital … Read more I have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies – how can I find it if it’s not available via public sources?

I have a set of public company comparables and need to get the projections from equity research. How do I select which report to use?

This varies by bank and group, but two common methods: 1. You pick the report with the most detailed information. 2. You pick the report with numbers in the middle of the range. Note that you do not pick reports based on which bank they’re coming from. So if you’re at Goldman Sachs, you would … Read more I have a set of public company comparables and need to get the projections from equity research. How do I select which report to use?

How do you value Net Operating Losses and take them into account in a valuation?

You value NOLs based on how much they’ll save the company in taxes in future years, and then take the present value of the sum of tax savings in future years. Two ways to assess the tax savings in future years: 1. Assume that a company can use its NOLs to completely offset its taxable … Read more How do you value Net Operating Losses and take them into account in a valuation?

Walk me through a Sum-of-the-Parts analysis.

In a Sum-of-the-Parts analysis, you value each division of a company using separate comparables and transactions, get to separate multiples, and then add up each division’s value to get the total for the company. Example: We have a manufacturing division with $100 million EBITDA, an entertainment division with $50 million EBITDA and a consumer goods … Read more Walk me through a Sum-of-the-Parts analysis.

Both M&A premiums analysis and precedent transactions involve looking at previous M&A transactions. What’s the difference in how we select them?

– All the sellers in the M&A premiums analysis must be public. – Usually we use a broader set of transactions for M&A premiums – we might use fewer than 10 precedent transactions but we might have dozens of M&A premiums. The industry and financial screens are usually less stringent. – Aside from those, the … Read more Both M&A premiums analysis and precedent transactions involve looking at previous M&A transactions. What’s the difference in how we select them?